Dividends4Life (34.54)

13 Dividend Stocks With A Quick Payback

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Payback is the amount of time needed for an investment to earn its cost, undiscounted. For example, if you buy a dividend stock for $100 that pays a $5 annual dividend, the payback is 20 years (100/5). Though not very sophisticated, payback can still help you screen for good, solid dividend growth stocks.

When applying this concept to dividend growth stocks, the calculation is a little more complicated than the simple example above due to the annual dividend increases. Nothing that can’t be quickly modeled in a spreadsheet.

Companies with a very short payback are often troubled or have been highly discounted due to the market’s lack of faith in them. At the other extreme, do you really want to wait 30, 40 or 50 years to earn back your initial investment? As a compromise, a 9 to 13 year payback should be acceptable for most long-term investors.

Once you earn back your investment, some might say you are in a no-lose situation. I wouldn’t go quite that far, but you have found an investment that that has provided you a good historical revenue stream, and hopefully it will continue to do so in the future.

This week week, I screened my dividend growth stocks database for select stocks with a 9 to 13 year payback (at the current yield and dividend growth rate) and yield of 2% or more. The results are presented below:

McDonald's Corporation (MCD) - McDonald's Corporation is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries. Yield: 2.8% | Payback Years: 12.2

Walgreen Co. (WAG) - Walgreen Co. is the largest U.S. retail drug chain in terms of revenues. It operates more than 8,000 drug stores throughout the U.S. and Puerto Rico. Yield: 2.2% | Payback Years: 12.1

AFLAC Incorporated (AFL) - Aflac Incorporated provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at work sites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S. Yield: 3.5% | Payback Years: 11.0

ConocoPhillips Co. (COP) - ConocoPhillips Co. was formed in 2002 when Phillips Petroleum and Conoco merged and is now is the fourth largest integrated oil company in the world. Yield: 4.2% | Payback Years: 9.9

Lockheed Martin Corp. (LMT) - Lockheed Martin Corp. is the world's largest military weapons manufacturer and is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales. Yield: 4.3% | Payback Years: 9.7

As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.

My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 210+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.